) - The glut of foreclosed housing inventory kept home prices in check during 2010 and may force prices another 5% lower this year, according to RealtyTrac.

The real-estate data tracking firm said Thursday that foreclosure levels hit new highs last year, with 3.8 million foreclosure filings on 2.9 million properties, a 2% increase from the previous year. Rick Sharga, a senior vice president at the firm, said the number could have been much higher but for the legal issues that held back progress at large mortgage servicers.

"As bad as the numbers were, they actually could have been much worse," says Sharga. "We probably saw as many as a quarter million fewer foreclosure transactions than we might have seen just due to the

robosigning issues."

Now that big banks like

Bank of America

(BAC) - Get Bank of America Corp Report


Wells Fargo

(WFC) - Get Wells Fargo & Company Report


JPMorgan Chase

(JPM) - Get JPMorgan Chase & Co. (JPM) Report



(C) - Get Citigroup Inc. Report

have worked through many of the processing flaws, Sharga expects those distressed properties to hit the market as soon as this quarter. The additional inventory will almost certainly keep a lid on prices, he adds.

TheStreet Recommends

"We wouldn't be shocked to see home prices drop another 5% this year before starting to rebound," says Sharga. "Really, until you start to see the inventory levels start to become more manageable, it's going to be difficult to see the housing market come back appreciably."

The S&P/Case-Shiller Home Price Index shows that home prices have been caught in a tight range since the start of 2009, roughly around where they were in mid-2003. According to the National Association of Realtors, the median sales price of existing homes was $177,900 in the third quarter, vs. $217,900 at the height of the market in 2007; Commerce Department data show the average price of a new home declined 2% in November to $268,700, vs. year-ago prices of $274,700.

RealtyTrac said that in 2010, one in every 45 houses received a foreclosure notice - though the rate slowed considerably during the fourth quarter, as banks faced pushback from regulators and state attorneys general. One in every 501 homes received a filing in December, for instance.

More than half of the foreclosure activity came from a handful of states - California, Florida, Arizona, Illinois and Michigan - which have either seen home prices plunge sharply since the downturn began, have seen unemployment rise sharply, or some combination of the two.

Sharga notes that banks appear to be carefully managing their distressed inventory: Less than one-third of the homes that have been repossessed are being marketed for sale, he says. This may help avoid pushing home prices down significantly, but may also drag out the housing market downturn for a few years.

"That, by the way, isn't a bad thing," says Sharga. "It's probably better to allow the market to absorb those properties gradually over the next few years, than risk flooding the market with them and risk seeing prices fall even further."


Mortgage Mayhem >>

-- Written by Lauren Tara LaCapra in New York


>To contact the writer of this article, click here:

Lauren Tara LaCapra


>To follow the writer on Twitter, go to


>To submit a news tip, send an email to:


Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.